# Dollar demand persists even as stocks recover
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-07-21
Category: TRADING
Category URL: https://financedigest.com/category/trading
Meta Title: Currency Markets Show Caution as COVID-19 Fears Hit Stocks
Meta Description: Stay updated on currency market trends as dollar strengthens due to inflation and COVID-19 concerns affecting riskier currencies.
URL: https://financedigest.com/dollar-demand-persists-even-as-stocks-recoverhtml

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By Elizabeth Howcroft

LONDON (Reuters) – Currency markets still showed signs of caution on Wednesday, with the safe haven dollar touching its highest since early April and riskier currencies losing out due to a combination of fears over inflation and surging COVID-19 infections.

The Delta variant of the coronavirus replaced inflation as investors’ primary source of concern this week, prompting global stocks to drop sharply on Monday. European equity markets picked up on Wednesday and [Wall Street](https://www.financedigest.com/wall-street-stocks-power-higher-as-treasury-yields-and-dollar-ease.html "Wall Street stocks power higher as Treasury yields and dollar ease") futures pointed to a stronger open.

By 1120 GMT, the dollar index was up 0.1% at 93.055, having [touched 93.194 in early trading](https://www.financedigest.com/idbi-capital-markets-securities-india-rolls-out-apple-watch-voice-and-touch-based-trading.html "IDBI Capital Markets & Securities (India) rolls out Apple Watch voice and touch based trading"), the highest since April 1.

Joel Kruger, currency strategist at LMAX Group, said the risk-averse mood and [inflation fears were joining forces to push the dollar](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides") higher.

It’s becoming increasingly difficult for the [Fed to be able to reconcile its stance that inflation](https://www.financedigest.com/stocks-tumble-dollar-rallies-as-soaring-u-s-inflation-implies-an-aggressive-fed.html "Stocks tumble, dollar rallies as soaring U.S. inflation implies an aggressive Fed") is transitory. At some point the definition of transitory is called into question,” he said.

Kruger [expects more dollar](https://www.financedigest.com/dollar-drops-as-inflation-cools-more-than-expected.html "Dollar drops as inflation cools more than expected") strength in the third quarter, with the dollar index heading towards 96 to 97.

The Australian dollar, seen as a liquid proxy for risk appetite, fell to its lowest since November in early [trading before recovering](https://www.financedigest.com/eu-recovers-appetite-for-trade-in-green-industry-push.html "EU recovers appetite for trade in green industry push") somewhat. At 1124 GMT, it was down 0.2% on the day at $0.73135, while the New Zealand dollar was up 0.1% at $0.6924.

[Australia’s two largest states reported sharp increases in new COVID-19](https://www.financedigest.com/freedom-day-sydney-reopens-as-australia-looks-to-live-with-covid-19.html "‘Freedom Day’: Sydney reopens as Australia looks to live with COVID-19") cases on Wednesday, a blow to hopes that lockdown restrictions would be lifted as more than half the country’s population was subject to stay-at-home orders.

The British pound, which on Tuesday [hit its lowest since](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") February, was down 0.1% at $1.3616.

Analysts pointed to a stand-off between Britain and the [European Union](https://www.financedigest.com/lisk-announces-lsk-token-listed-on-bitflyer-the-european-unions-newest-crypto-exchange.html "Lisk announces LSK token listed on bitFlyer, the European Union’s newest crypto exchange"). Prime [Minister Boris Johnson said that his government would outline its approach on the Northern](https://www.financedigest.com/will-mays-new-minister-percy-keep-the-northern-powerhouse-on-track-post-brexit.html "WILL MAY’S NEW MINISTER PERCY KEEP THE NORTHERN POWERHOUSE ON TRACK POST BREXIT?") Ireland Protocol to Britain’s parliament on Wednesday. [COVID-19 cases in Britain are also surging](https://www.financedigest.com/stocks-on-worst-run-in-18-months-amid-global-covid-19-surge.html "Stocks on worst run in 18-months amid global COVID-19 surge").

The euro was down 0.4% versus the commodity-dependent Norwegian crown, with the [pair changing hands at 10.5722 compared](https://www.financedigest.com/compare-the-pair.html "COMPARE THE PAIR") to 10.7038 in the previous session, a seven-month low for the crown.

Generally, we see the recent [dip in cyclical FX as a correction rather than a more pronounced trend and look for a recovery in higher beta currencies backed by hawkish central banks later](https://www.financedigest.com/dollar-dips-ahead-of-inflation-data-later-this-week.html "Dollar dips ahead of inflation data later this week") this summer,” wrote ING strategists in a note to clients.

Currency markets are looking ahead to the European [Central Bank’s](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks") (ECB) meeting on Thursday. A dovish tone is expected after [ECB President Christine Lagarde](https://www.financedigest.com/ecb-needs-to-keep-interest-rates-sustainably-high-to-combat-inflation-lagarde.html "ECB needs to keep interest rates ‘sustainably high’ to combat inflation – Lagarde") foreshadowed a guidance tweak in an interview last week.

The [euro was down 0.1% against the dollar](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data"), at $1.1772, having earlier hit a 3.5-month low.

The ECB announced a new strategy which allows the bank to tolerate [inflation above its 2% target](https://www.financedigest.com/the-mouse-that-roared-new-zealand-and-the-worlds-2-inflation-target.html "The mouse that roared: New Zealand and the world’s 2% inflation target"), and Lagarde said policy guidance would be revisited to demonstrate the bank’s commitment to the new goal.

In cryptocurrencies, bitcoin rose back above $30,000, having dipped below this key level for the first time in a month on Tuesday. At 1129 GMT, it was trading around $31,441, while ether was at $1,902.

(Reporting by Elizabeth Howcroft; Editing by Joe Bavier, Kirsten Donovan)


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